Shutting down – the only choice in crisis

The current big difficulties have made a lot of projects fail completely, including the ones, which were believed to be highly feasible.

The 16 hectare Lien Anh Textile and Footwear Material Center in Binh Duong province, established in 2009 with the total investment capital of 12 million dollars, which was hoped to help footwear and garment companies to boost exports, have shut down.

“We have to shut down the center, because it cannot bring profit,” said Truong Thi Thuy Lien, Deputy Director of Lien Anh Company, the owner of the center.

The center has been designed to fit 650 standard booths. However, from the day of opening to the day of closing, there were only several operational booths. The big textile and garment material market, covering an area of 11,000 square meters, have shifted into the store areas for lease.

Also according to Lien, the failure of the center can be explained by the low percentage of garment exports under the FOB (free on board) mode. In general, Vietnamese companies simply import materials from foreign partners and do the outsourcing for the partners. The volume of products accounts for 70 percent of the total garment exports every year, while the exports under the FOB mode just account for 30 percent.

Meanwhile, the dissolution of many footwear and garment companies over the last two years in the economic downturn, has also badly affected the operation of the center.

In fact, domestic garment companies once tried to reduce the percentage of outsourced products and increase the percentages of the exports under the mode of definitive sale. Therefore, in 2009, many experts believed Vietnam needed more garment material centers to serve the demand of enterprises.

However, since mid 2010, when difficulties arose, enterprises have not been able to access bank loans to fulfill export contracts. As a result, they have to take outsourcing orders, again, which explains why the number of FOB orders has decreased sharply over the last two years.

Going bankrupted

Despite a lot of exertions, a lot of businesses cannot stand the big difficulties. Director of the Binh Hoa Garment Company Phung Dinh Ngo, said that the number of workers of the company has dropped from 600 to 100. “We are no more capable to take orders directly from foreign partners. The current 100 workers are fulfilling the orders transferred by some big garment companies,” he said.

“Businesses have many times cried for help. However, the support of the State just remains on… paper, and our proposals have been ignored,” he complained.

Le Anh Tuan, Deputy Head of the HCM City Management Board of Industrial Zones and Export Processing Zone, said that some tax policies prove to be unreasonable. Especially, the meals of workers are still being imposed tax (catering companies have to pay 10 percent in VAT), which have more burdened workers in the context of high inflation.

A lot of enterprises are still struggling to survive and seek the way of going bankrupted “in the safest way”. A director of a plastics company in Binh Chanh district in HCM City said that he wanted to file for bankruptcy a long time ago. However, the problem is that the most valuable of the company – the 1000 square meter premises – have been mortgaged at a bank for loans.

“It is unable to sell workshops at this moment, because the prices are much lower than the prices at which I bought the premises. Even if sell the premises, I will not have enough money to pay bank debts,” he said.

The director went on to say that more than 70 percent of the company’s premises have been re-leased, while his company now only has tens of workers and the workshop has been running at a moderate level.

Hepza has also reported that a lot of enterprises in industrial zones have halted operation, scale down production, transferred workshops or stopped production. Tuan said that Hepza now tries to contact different sources in order to help investors access low cost capital to prevent them from sinking.

Source: TBKTSG